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For-profit school agrees to erase $494 million in unpaid student loans

Jan. 4, 2019
Career Education Corp., which enrolled more than 100,000 students at its peak, now has just two remaining chains—American InterContinental University and Colorado Technical University.

Nearly 180,000 former students at for-profit schools run by Career Education Corp. will not have to repay $494 million they owed to the company, a group of 49 state attorneys general have announced.

The New York Times reports that the agreement ends a five-year multistate investigation into complaints that the company used predatory and deceptive recruiting tactics. It mens that debt held directly by Career Education, such as unpaid tuition, is being forgiven.

Iowa Attorney General Tom Miller, whose office helped lead the states’ investigation, says Career Education misled students about the cost of its programs and its graduates’ job prospects. In some cases, Miller says, Career Education charged students for vocational programs that lacked the accreditation needed for them to obtain a license and work in their field.

Career Education, based in Schaumburg, Ill., denied any wrongdoing. The company's two remaining chains, American InterContinental University and Colorado Technical University, which operate mainly online, enrolled about 35,000 students last year.

Todd Nelson, the company’s chief executive, says in a news release that the settlement is an “important milestone” in its turnaround efforts.

“We have remained steadfast in our belief that we can work with the attorneys general to demonstrate the quality of our institutions and our commitment to students,” Nelson says.

The company was once among the largest for-profit education chains in the United States, but has shrunk to about a third of its former size as state and federal regulators cracked down on its operations.

Career Education had until recently been trying to collect on a significant portion of the nearly $500 million owed to it by former students, according to the Iowa attorney general’s office. Those efforts must now stop, and the company is required to ask credit bureaus to delete those debts from borrowers’ credit reports.

The deal affects only debt held by Career Education and does not cover federal student loans, which are managed by the U.S. Education Department, or private student loans owed to other lenders. The only state not included in Thursday’s deal, California, is preparing its own settlement with Career Education, the company says.

The Education Department can forgive the federal loans of students who were defrauded by their schools through its borrower defense program. At least 2,000 former Career Education students have applied for that relief, according to public records gathered by researchers, but the Education Department has not yet made a decision on any of those applications.

At its peak, Career Education enrolled more than 100,000 students at 100 campuses worldwide, including the Le Cordon Bleu chain of culinary schools and the vocationally focused Sanford-Brown Colleges and Institutes.

But a string of lawsuits and a nationwide regulatory crackdown on for-profit schools sharply reduced its financial fortunes. In 2015, the company decided to close most of its campuses.

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